This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
This morning sees the UK 100 blue-chips deliver a standard response to Trump trade concerns; losses for risk-asset names like Miners (GLEN, RIO, BHP), Oil (RDS, BP) and Banks (LLOY, HSBC, BARC) easily outweighing gains for the safe haven precious metals miners (FRES, RRS). The index’s test of key support going back not just to the US election but the Brexit referendum is highly significant.
A weaker US dollar normally boosts metals and oil prices by making them cheaper for non-USD buyers, in turn helping Oil/Miners. However, the currency sell-off is more to do with waning faith in Trump’s ability to deliver on all his stimulus pledges after failure to kick off Healthcare reform.
Base metals are hurting from assumed delays to infrastructure spending that could mean less demand for raw materials and slower US growth providing less of a positive ripple round the world. A stronger resulting GBP also serves as a translational drag for Miners having been such a huge benefit since the Brexit vote and Trump election.
Banks are lower due to potential difficulty in implementing much desired US deregulation and widespread US tax cuts. This could mean slower US growth and less inflation, forcing the Fed to slow up on rate hikes, offering less of a boost to banks’ net interest margins and thus profitability.
The flip side of a weaker USD hurting base metals is fuel to the fire of demand for port-in-a storm assets like Gold and Silver. Driven by increased uncertainty, these have delivered breakouts to extend 2-week rebounds that can’t be ignored at the same time as major equity support is tested.
The question now is whether this Trump trip-up is a blueprint for the rest of his campaign promises; whether Republican divides are too big to overcome. He may have written “The art of deal”, but he must be smarting at this no-deal. Or could it in fact allow him to proceed more quickly with the other more pro-growth, pro-business stimulus/reforms that were arguably the bigger foundations for the Trumpflation rally that is now under fire.
Mike van Dulken, Head of Research, 27 mar 2017
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research
Comments are closed.
